Speech of the Azerbaijan President Heydar Aliyev at London Conference Azerbaijan as a Partner in World Business and Trade - 29-30 November 1995

Distinguished Ladies and Gentlemen!

Allow me to express my gratitude to the Adam Smith Institute and to all organizers for convening the first International Conference and conducting the exhibition on "Investment Opportunities in Azerbaijan".

I cordially thank You for Your attention to the economic future of my country, to its efforts aimed at active integration to the world community.

I extend my greetings to all participants of this conference dedicated specially to Azerbaijan and I hope that this meeting will promote further development of business contacts, mutually beneficial cooperation, a better understanding of opportunities for extension of entrepreneur-ship in my Republic.

Azerbaijan is a country of an ancient culture and great history. Thanks to its favorable location at the juncture of Europe and Asia it has always played a role as an important center for international trade.

Rich natural resources, in particular, enormous oil and gas reserves, unique climate which allows to develop all spheres of agriculture, has been always causing intent interest to Azerbaijan from all over the world.

All those visiting our country could easily witness the signs of this permanent interest: remains of ancient and medieval trade centers - Caravan-sarays, magnificent castles built by the biggest Western companies at the time of the industrial and investment boom in Azerbaijan at the end of the 19th - beginning of the 20th centuries - and right over there - new modern offices of many companies of the world, which have recently invested in joint mutually beneficial projects.

I am confident that today, Azerbaijan is also at the eve of a new economic renaissance, based on our potentialities.

Favorable conditions have promoted the establishment of an industrial complex in Azerbaijan, one of the biggest in the former USSR. The central element of the j Republic's economy is the oil industry. It had served as a basis for building of oil-refining and petro-chemistry, oil-engineering and other industries. In the 70-s the onesided development of the industry was remarkably overcome by creating dozens of big plants in such spheres as electronics, electrical engineering, tool-producing industry and machinery production.

Based on the rich resources of agricultural raw materials, the processing and full-cycle production industry have been developed. The large light industry and food industry have been created. Industrial and social infrastructure has been also remarkably improved.

The Republic possesses high-level intellectual power, wide-spread network of educational, scientific and project developing institutions.

In general, the economy of Azerbaijan has been developed as a balanced and integrally interconnected complex based on domestic raw materials and energy resources, with active foreign trade.

At the same time, defects of the centralized and command economy, imperial trends in the relationship of the Center with the Republic, did not allow to use fully the high potential of the Azerbaijan's economy. Along with the degradation of the Soviet economy in the 80-s and with the following collapse of the USSR, crisis indications in the Azerbaijan's economy had also increased.

As a result of the collapse of the Soviet Union, Azerbaijan gained its independence. That created the necessary prerequisites for the fundamental political and economic transformation of the society.

Our strategic policy is to create a sovereign democratic law-governed state with market economy closely integrated to the world economy. In line with that, we have been carrying out large-scale political and economic reforms which have already given concrete results.

We have strongly ensured human rights and freedom, political pluralism and multi-party system in our society.

More than thirty political parties, several hundreds of independent newspapers, news agencies and broadcasting companies have been enjoying full freedom.

The referendum on the adoption of the new Constitution of the Republic of Azerbaijan and the first democratic parliamentary elections based on multiparty system have become the most important events in the political life of our country. For the first time in its history, independent Azerbaijan has adopted its Constitution on the basis of a genuine nation-wide will, and has elected its Parliament under conditions of guaranteed political pluralism.

The outcome of the referendum and elections unequivocally indicate that the people of Azerbaijan have confirmed and supported our strategic policy aimed at independence and democratic development.

All that has further strengthened political stability in the country and created wide prospects for Steady implementation of progressive changes in the society, based on the principles of the Constitutions.

The new Constitution of independent Azerbaijan does not only guarantee wide political freedom, but also strengthens the course aimed at the development of the market economy, pluralism in terms of different types of property and inviolability of private property. It also ensures free entrepreneur-ship and protection of the rights of owners.

The existing legislative base, including more than forty laws and over two hundred other normative acts protecting the interests of enterprises, further strengthens the Constitutional guarantees for economic reforms. Laws on property, on investment activities, on protection of foreign investments, on share-holding companies, on stock exchange, on securities, on currency regulation, etc., could be particularly noted.

There are eight political parties represented in the new Parliament, with the overwhelming majority of the Parliamentary seats won by candidates who support the present course aimed at ensuring stability, political and I economic reforms, rapid integration of Azerbaijan into the world community.

Along with the political reforms we have been also conducting large scale economic reforms.

Our strategic course for carrying out economic reforms is aimed at democratization of the economy on the basis of market management principles, privatization and pluralism in terms of types of property, as well as openness and close integration into the world economy.

In conformity with that we have started to implement a large-scale privatization of state-owned property. By the present time, trade and service sector have been already privatized. By the end of the next year we intend to privatize the major part of state-owned property in all sectors of economy.

We have launched reforms in agriculture. As a result of it over two thousand and a half farmer economics have been created. The pace of reforms in agriculture and opportunities for foreign investors will be discussed at a special conference in Paris in coming days, organized by the World Bank .

We have been also undertaking some other large-scale endeavors in management of economy, in order to implement our strategic policy. A bright example of our aspiration for openness, for close integration into the world community is the cooperation with the leading transnational oil companies.

Today, well known companies, such as British Petroleum, AMOCO, Exxon, Pennzoil, Agip, McDermott, LUKoil, Statoil and others, are already operating in Azerbaijan. Successful negotiations on the development of new promising oil fields are under way with Mobil Oil and Elf-Aquitaine.

The first contract on the joint development of "Azeri", "Chirag" and "Gunashly" fields was signed on September 20, 1994. The reserves of these fields which are over 500 million tons, their quality and other signs, promise long-term (30 years) mutually beneficial outcome for all involved in this contract, namely - eleven companies from seven countries of the world - USA, United Kingdom, Russia, Turkey, Norway, Saudi Arabia and Azerbaijan. Signing of this contract is not only of economic importance for us. Its significance could be also explained by the fact that it proved to be the first breakthrough step into the international economic cooperation system. It was an evidence of our commitment to the principles of openness and market management. It has played and continues to play an important role in the strengthening of the geopolitical position of Azerbaijan. Therefore, we have created and continue to create the most favorable investment climate, and to ensure privileges for implementation of this and similar contracts.

It is with immense satisfaction that I would like to inform you that the work-schedule of the contract is being successfully implemented. The volume of its financing for 1995-1996 reaches nearly $700 million.

A very important decision has been adopted recently on the routes of two pipelines for the transportation of early oil from Azerbaijan through the territory of Russia and Georgia to the terminals on the Black Sea. This does not only meet our interests but it will also have positive impact on the economy of the bordering countries.

Recently, on November 10, we took another decisive step in this direction. Another oil consortium, which includes AGIP of Italy, LUKoil of Russia, Pennzoil of the US and SOCAR of Azerbaijan, has been created. This consortium will be involved in exploration and development of "Karabakh" field, with an approximate reserves of about 150 Million tons. I am confident that this contract will also be successfully implemented.

Availing myself of this opportunity, I would like to note that this and other oil contracts open broad prospects not only for the oil industry, but also for other related areas, and create quite advantageous investment opportunities for entrepreneurs.

At the same time, it is necessary to note that we have been carrying out successful radical political and economic reforms under hard conditions of transition period aggravated by the consequences of the foreign aggression. The world community is aware of a number of armed conflicts in the Caucasus. One of them has been going on for seven years between Armenia and Azerbaijan, being caused by Armenia's intention to annex the Nagorno-Karabakh region of the Republic of Azerbaijan.

As a result of this aggression over twenty per cent of our territory has been occupied, more than one million of our citizens have been ousted from their homes, and now are living under hard conditions in tent camps in the other regions of Azerbaijan.

The United Nations Security Council has adopted four resolutions condemning the capture of our territories and demanding the unconditional withdrawal of all armed forces of Armenia from the occupied territories. But the aggressor ignores them.

Nevertheless, demonstrating good will, we have chosen the way of peaceful political settlement of the conflict within the framework of the specially created Minsk Group of the OSCE. We have managed to achieve a cease-fire and reconciliation, which have been lasting for a year and a half. Active diplomatic negotiations are under way, and we hope that they will lead to establishment of a lasting and just peace, restoration of the territorial integrity and inviolability of borders of Azerbaijan, the return of refugees to their native homes.

In general, we consider the securing of the political stability in Azerbaijan as our most important achievement which constitutes the necessary condition for our successful steps in the implementation of political and economic reforms.

The growing consolidation within the society for the solution of the national tasks, strengthening of the statehood and legal order, a practical ensuring of human rights and political freedoms, have created an atmosphere of stability favorable for foreign investors.

Ladies and Gentlemen,

At present, over one thousand foreign enterprises and joint ventures are already functioning in Azerbaijan. We are in search of new ways and forms of cooperation for further expansion of interrelation with foreign investors. Together with the United Nations Industrial Development Organization (UNIDO) we are drafting a project of a free entrepreneur-ship zone in the city of Soumgayit where the largest plants of petro-chemistry, production of drilling pipes, aluminum, construction materials and others are concentrated.

We have adopted a decision to transfer a number of our enterprises to foreign management on mutually beneficial terms in order to actively attract advanced foreign know-how to the Republic.

I think that the implementation of these plans will give a new impetus to the private ownership in Azerbaijan, will enable foreign commercial banks to take a more active participation in financing projects in our country.

Azerbaijan possesses favorable conditions, scientific and industrial basis, qualified personnel, available labor resources for the acceleration of the development of electronics, tool production and engineering industries. I would like to particularly emphasize the prospects for oil machinery production of Azerbaijan, which used to be the leading supplier of oil equipment in the former USSR. However, due to the existing economic situation in new independent states, the traditional market for oil equipment has considerably changed. Therefore, we believe that our task is to attract foreign investments and to use the existing potentialities, in terms of production capacities, know-how, knowledge and qualifications, in order to rapidly and effectively launch on the production of oil equipment of the highest world standards able to compete at the world market.

We have promising proposals on joint cooperation in petro-chemistry, metallurgy, production of consumer goods. Taking into account the growing investment interest to Azerbaijan it would be perspective to invest in the service sector, particularly in the hotel business and telecommunications.

In a nutshell, there are vast opportunities for our cooperation, and I hope that the heads of various sectors of our economy accompanying me, will give a detailed picture of our potentialities.

Of course, we understand that a breakthrough in the economic development of the Republic can not be achieved without substantial international support.

In this regard we have been closely cooperating with the International Monetary Fund, World Bank, European Bank of Reconstruction and Development and the European Community. As a result of the approval of our reform program, the International Monetary Fund has extended $US 180 millions in 1995 (for structural changes and stand-by), and the World Bank - $US 65 millions (rehabilitation credit). The World Bank and the EBRD have extended about $US 140 millions for the implementation of water and energy supply projects, US $ 40 millions for institutional changes and development of the oil industry. The total makes more than $US 400 millions.

Some other projects for development of key sectors of economy such as gas supply, health, farmer economies, etc., are under consideration. The implementation of these projects would speed up the structural changes in the economy. We regard all this not only as financial support, but first of all, as a credit of confidence for the implementation of reforms in Azerbaijan.

I think that foreign investors, commercial banks should take this positive factor into account while estimating the political risk of their investment in Azerbaijan.

On our side we undertake all necessary measures to strengthen the market orientation of the economy, to improve the management of economy lo the level of the commonly accepted world standards. In this regard, we have achieved certain successes in the reform of the bank system, in ensuring the stability of monetary system. It allowed to stabilize the exchange rate of the national currency (which has been stable during 1995), to increase considerably the accumulation of currency reserves in foreign banks. An International Bank on the type of "Eximbank" has been established in the Republic and has been integrated in the international system of payments and now it provides all kinds of international banking services.

The reforms in the financial sector allowed to reduce sharply the inflation rate (from 60 percent in December of 1994 to 2 percent on average per month in the last half of 1995), and the budget deficit, thus leading to financial stabilization in the country. Trends towards the stabilization in production has also been visible in recent months.

1 would like to emphasize the measures on the liberalization of prices, foreign trade and currency circulation which are of principal significance for the functioning of foreign investors. In conformity with my decrees in January and April of 1995 foreign economic relations were liberalized, the system of state orders and various quotas, budgetary subsidies were lifted. Along with them, unification and liberalization of hard currency regime, centralization of foreign exchange deposits at the National Bank, regular activities of inter-bank currency exchange have created favorable conditions for foreign investors. These measures contributed considerably to the growth of foreign trade in the country, stimulated the flow of foreign small and medium businesses to the republic. But the main thing is that these measures have led to speedy formation of the market environment and strengthened market orientation of manufactures.

In conjunction with the development of privatization and reforms in agriculture these processes are expected to be intensified in the near future. In this regard, I want to emphasize that the liberal regime of property purchase by foreigners in Azerbaijan which has been included into the program of privatization creates favorable conditions for the flow of foreign investments to Azerbaijan.

The field for their activities in Azerbaijan is practically unlimited and promising. We shall create more favorable conditions for those investors who would contribute to create more new jobs and develop export potential, reduce the critical import, mostly, food imports. To assist the foreign investors, mostly, the small and medium businesses in the Azerbaijan's market, and to facilitate their adaptation to the local conditions corresponding structures have been created in the Cabinet of Ministers and the Ministry of Economy. The Committee on support for entrepreneur-ship is also functioning in the country. At present, measures are being taken to regulate the order of registration of foreign enterprises, to ease their relations with tax and other state bodies in order to remove the bureaucratic obstacles on the way of foreign investors.

These structures will also allow to strengthen the awareness of business circles about existing opportunities for the expansion of cooperation. Together with it, we shall also look for other forms to strengthen mutual contacts. As a positive example 1 would like to mention two International Caspian Exhibitions on oil and gas, convened in Baku by our British partners. Undoubtedly, the present exhibition also will strengthen our business contacts and display the potentials of the Azerbaijan's economy. I hope that the further exchange of information on various aspects of our economy is an important mean to increase our cooperation.

Realization of these political, legal, institutional, economic and other measures have created good prerequisites for vast involvement of small and medium businesses in Azerbaijan. Therefore, I invite all of you to make business with Azerbaijan, to take part in the development of its economy on mutually beneficial basis. To achieve this it is necessary to establish close contacts with our enterprises, ministries, with all those on whom the fate of investment projects depend. Most of them are here with me in order to establish direct contacts with you and to answer your concrete questions, so, this work must begin today.

I want to stress once more that organizations and enterprises of Azerbaijan are interested in the development of commercial and economic relations with you, they understand clearly the advantage of, possibilities and mutual benefits of these relations. It is well known that the United Kingdom and other Western countries are the main centers of financial resources, new technology and free entrepreneur-ship. At the same time, we are sure that a certain number of production of enterprises of Azerbaijan may now find their consumers in the foreign markets. Therefore, it is necessary to look for opportunities for constant increase of mutually advantageous commercial turnover, to use the great existing potential for the development of economic and technical cooperation.

The firm line aimed at strengthening of independence, socio-political stability in the Republic, market transformations and the achieved noticeable results, confidence of big international financial institutions, practical implementation of the principle of openness of our economy are strong evidence that Azerbaijan is a useful and reliable partner in business.

Therefore, I appeal to you, to all public and private Western economic and financial organizations with the request to support the investments in Azerbaijan.

In conclusion let me wish all of you successes in your activities. I hope that the First International Conference and Exhibition "Investment Opportunities in Azerbaijan" will become an important step on the road of mutually beneficial cooperation between Azerbaijan and the international business circles and financial institutions.
Thank you for your attention.

The document was taken from the edition of "Heydar Aliyev New Political Course".